Wall Street banks face their toughest clampdown since the Great Depression after the US Senate passed Barack Obama's banking reform bill.

In a historic change, the US government will be handed the power to seize control of a failing bank to avoid a collapse that could threaten the financial sector. Derivatives trading will be subject to new controls, and shareholders will get a British-style "say on pay" vote on boardroom bonuses.

Howewer, some measures were dropped from the bill – including stringent conflict-of-interest rules and tighter controls on proprietary trading – after Republicans prevented these topics being voted on. And it remains unclear whether US deposit-taking banks will also be banned from engaging in proprietary trading – buying and selling using their own money rather than their clients'.

The bill is meant to reshape Wall Street and prevent a repeat of the turmoil of the last few years. It is the biggest shake-up of the sector since the 1930s. As well as forcing changes on America's biggest banks, a consumer financial protection bureau will be introduced to police the sale of products such as mortgages and credit cards.

The passing of the bill, by 59 votes to 39, is a personal triumph for Obama – who accused the industry of attempting to stifle desperately needed reforms.

"Over the past year, the financial industry has repeatedly tried to end this reform with hordes of lobbyists and millions of dollars of ads. When they couldn't kill it, they tried to water it down."

The president said the law would mean an end to state-funded rescues: "Taxpayers will never again be asked to foot the bill for Wall Street's mistakes. There will be no more taxpayer-funded bailouts. Period."

Harry Reid, the Democrat majority leader in the Senate, said that the reform bill sent a clear message to Wall Street that they could not "recklessly gamble away other people's money".

"It says the days of too big to fail are behind us. It says to those who game the system – the game is over," Reid said last night.

One of the biggest changes will be that banks will be forced to keep their derivatives-dealing operations separate from their core operation, or divest them altogether. Derivatives trading will also have to take place through a central clearing house, rather than directly between trading teams, and banks will also have to post collateral to cover potential losses, pushing up the cost of dealing in derivatives.

The Senate bill must now be merged with a measure approved in December by the US House of Representatives, before it goes to the president to be signed into law, possibly in July. This means there is still some uncertainty over exactly how the final law will be framed.

Some analysts suggested that the bill may not prove as groundbreaking as Obama hopes, though. "The lobbyists are firmly in control of Washington, and the reform efforts are likely to be modest," said Jim Hardesty, president of Hardesty Capital Management, adding that Wall Street firms might simply "reinvent themselves".

Republican senators have continued to criticise the law. John Ensign of Nevada objected that the measures would lead to greater government intervention in the free market, creating "unintended consequences that may ultimately bring more damage down on the American people".

And John Cornyn of Texas claimed the measures would not reform Wall Street. "The Senate today imposed more regulations and red tape, which punishes small business owners and community bankers who had little or nothing to do with the economic crisis," he said.